STATES TURNING TO LAST RESORTS IN BUDGET CRISIS

June 23, 2009

With state revenues in a free fall and the economy choked by the worst recession in 60 years, governors and legislatures are approving program cuts, layoffs and tax increases that were previously unthinkable, says the New York Times.

All but four states must have new budgets in place less than two weeks from now -- July 1, the start of their fiscal year. But most are predicting shortfalls as tax collections shrink, unemployment rises and the stock market remains in turmoil.

Even with the stimulus funds, political leaders in 19 states are struggling to negotiate budgets, says the Times:

In Arizona, Gov. Jan Brewer (R) sued the Republican-controlled Legislature after it refused to send her its budget plan in hopes that she would run out of time to veto it.

In Illinois, the Democratic-led legislature is fighting a plan by Gov. Patrick J. Quinn, also a Democrat, to balance the new budget by raising income taxes.

In Massachusetts, Gov. Deval Patrick (D) has threatened to veto a 25 percent increase in the state sales tax that Democratic legislative leaders say is crucial to help close a $1.5 billion deficit in the new fiscal year.

The starkest crisis is playing out in California, where lawmakers are scrambling to close the $24 billion gap after voters rejected ballot measures last month that would have increased taxes, borrowed money and reapportioned state funds.

In all, states will face a $121 billion budget gap in the coming fiscal year, compared with $102.4 billion for 2009; personal income tax collections are down by about 6.6 percent, as are sales tax collections (3.2 percent) and corporate income tax revenues (15.2 percent).

As a result, governors have recommended increasing taxes and fees by some $24 billion for the coming fiscal year, says the Times.

Source: Abby Goodnough, "States Turning to Last Resorts in Budget Crisis," New York Times, June 22, 2009.